Co-founder of Dental Elite, Luke Moore, explains the negative impact of personal goodwill, and how it can be made impersonal to improve the outcome of your sale.
As a practice owner you’ll know all about goodwill and its impact on the perceived worth of your business to potential buyers. What you might be less familiar with, however, is the concept of personal goodwill, which is the term used to describe the value that is generated from your own personal abilities, skills, experience, contacts and reputation. If you didn’t know any better, you might be fooled into thinking that the greater the personal goodwill the better the value of the business, but in reality it has the opposite effect.
Indeed, where an individual has built up a lot of personal goodwill the business can appear more unattractive to potential buyers, which in turn has a negative impact on the overall valuation and worth of the practice. This is because the worth of the business lies within the value of the tangible and intangible net assets that can be transferred to the new owner. This might require you to stay on after the sale as an associate or adviser to transition your personal goodwill.
Of course the problem with that is if you were no longer able to work and fulfil your contract, the new owner could be left with the backlash of your personal goodwill and may be unable to diversify that risk. This in turn would have a negative impact on your deferred consideration because if the businesses’ performance isn’t maintained at the agreed level post-completion, you may never see your money. Of course, all this can be avoided by either ensuring that goodwill remains impersonal or by making the necessary changes in the years leading up to the sale so that it becomes a lot easier to sell the business – and at a good price too.
Building a turnkey solution that is reliant on systems and processes rather than the merit and input of the practice owner will always have a much stronger value. Therefore, it is crucial that you do everything you can to shift your goodwill from personal to commercial whilst you are the owner of the business. Adding in a second in command such as a practice manager can help with this, as it allows you to focus on more important matters at hand instead of handling the day-to-day running of the practice and troubleshooting commonplace problems. With this additional time you could make a whole host of improvements from taking your practice into the digital age and going paperless, to implementing and perfecting protocols and systems, executing a smart marketing plan, or investing in training and equipment to improve your commercial goodwill.
Reducing your clinical presence by dividing your patient base among your clinicians – or taking on more associates to cover the workload – also helps to disperse any personal goodwill that you may have built up and helps patients to disassociate the positive reputation of the practice from the service you personally have provided. Rather, the prestige of the business hinges on the overall performance of the collective team – both clinical and administrative. Thus, by the time you are ready to sell, your presence should have no bearing on everyday practice, meaning that you should be able to leave more or less immediately after the transaction is complete. Where possible, have more than one associate replace your clinical duties. That way, if one decides to move on, it will not affect the practices output or commercial goodwill.
Equally, diversifying your staff base and available skillset can help to ensure that your practice remains transactional through a wide variety of general and specialist services and encourages long-term patient loyalty. Conversely, relying on the practice’s income to be generated through referrals from other dentists can be very risky, as you are building a reputation with a smaller cluster of referrers rather than an established reputation with multiple patients.
Other than that, take care to distance yourself from any personal branding; that is to say remove your name from the practice’s title, logo or promotional material before you sell. Even if you’re not generating much of the income, the association of your name creates unwanted personal goodwill, which should be built up around the company alone.
At Dental Elite, we believe it’s never too early to make a start on your exit strategy, so if you intend to achieve the optimum outcome be sure to consider your personal goodwill sooner rather than later.